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Updated September 15, 2022 Fact checked by Fact checked by Pete RathburnPete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.
Part of the Series ForeclosureThe Pre-forclosure Period
How Foreclosures Work
Investing in Foreclosures
Foreclosure Terms (A-O)
Foreclosure Terms (P-S)
Foreclosure Terms (T-Z)
If you cannot keep up with your mortgage payments, the prospect of foreclosure—and with it losing your home—can be daunting. Still, foreclosure is a rigorous legal process, and you have certain rights based on state law along with the mortgage documents you signed.
Knowing your rights can help you navigate the foreclosure process as smoothly as possible or even avoid it if your lender violates any foreclosure requirements. Here's what you need to know.
Simply put, foreclosure is the legal process that allows lenders to recover the balance owed on a defaulted loan by taking ownership of and selling the mortgaged property as collateral. Nonpayment is what usually triggers default, but it can also happen if a borrower does not meet certain other terms in the mortgage contract.
Your loan servicer is the company that handles your mortgage account, and it may or may not be the company that either issued or currently owns the loan. The loan servicer is required to contact you (or try to do so) by phone to talk about "loss mitigation" no later than 36 days after your first missed payment—and within 36 days of any subsequent missed payments. Loss mitigation is the process by which you and your lender work together to try and avoid foreclosure.
Within 45 days of a missed payment, your servicer must notify you in writing about your loss mitigation options and refer you to someone who can help you try to avoid foreclosure. In general, your servicer cannot start to foreclose until you are at least 120 days behind on your payments.
Foreclosure notices are sent through the mail. If you're behind on your mortgage, read your mail carefully, and be sure to pick up any certified or registered mail.
Mortgage contracts typically have a clause that obligates lenders to send a written notice called a "breach letter" to tell you when you are in default. The breach letter must include:
To cure the default and avoid foreclosure, you must pay the entire past-due amount by the date shown in the breach letter, along with any back interest, late fees, and penalties. If you do not—and you have not worked out some other option—foreclosure proceedings will likely begin. In general, you must be behind on payments for at least 120 days before a foreclosure can start, so your lender will likely send a breach letter close to the 90 th day of the delinquency.
You are entitled to notice of a pending foreclosure no matter which state you live in. If it's a judicial foreclosure, you'll get a complaint and summons letting you know that a foreclosure has begun. If it's a nonjudicial foreclosure, you may receive two notices:
If you do not receive an appropriate notice under your state's laws, you may have a defense against foreclosure. While that does not necessarily mean you could avoid the foreclosure, it may force the servicer to issue a new notice and start the foreclosure process from scratch. That could potentially give you enough time to get caught up on payments or sort out another option. An FDCPA validation notice may be combined with a breach letter.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
Depending on state law, you may be able to stop a foreclosure if you make a lump-sum payment to get up to date on your loan, including any fees and expenses. After that, you resume your regular payments.
In general, you must reinstate the loan by a particular deadline, such as by 5:00 p.m. on the last business day before the property sale is scheduled.
Your mortgage contract may also give you the right to reinstate. Check your mortgage or deed of trust for a section known as the reinstatement clause, titled "Borrower's Right to Reinstate After Acceleration" (or similar language) to find out if and how you can reinstate your loan.
If you do not have a right to reinstate through state law or your mortgage contract, the lender may allow you to reinstate after considering your request. If the lender refuses, you can ask a court to allow the reinstatement. In general, a judge would rather avoid foreclosure if you have the cash to get current on your loan.
All states let borrowers pay off debt (including fees and expenses) and "redeem" their property before a foreclosure sale. Some states even allow borrowers to buy back the property after the foreclosure sale. To redeem the property, you pay the entire balance due before the foreclosure sale or reimburse the person or entity that bought the property at the foreclosure sale, depending on the situation.
Some states, counties, and cities give property owners facing foreclosure the right to partake in mediation. In foreclosure mediation, you meet with your lender (or servicer) and an impartial mediator to discuss options like a loan modification, short sale, repayment plan, or deed in lieu of foreclosure.
Homeowners are provided rights and protections to help them in the event of a potential foreclosure. Most lenders would prefer to work out a plan than foreclose on your home.
No matter where you live, you have the right to challenge the foreclosure in court. You can participate in the existing foreclosure lawsuit if it's a judicial foreclosure. However, if it's a nonjudicial foreclosure, you must file your lawsuit. In general, it may make sense to challenge the foreclosure if you think the servicer made a mistake or violated the law.
If the property sells at a foreclosure sale for more than you owe (including any fees, expenses, and liens on the property), you are entitled to the excess proceeds—called a surplus. Of course, depending on state law, if the foreclosure sale does not cover your debt, you may be on the hook for a deficiency judgment.
The Fair Debt Collection Practices Act (FDCPA) is a federal law that covers when, how, and how often third-party debt collectors can contact debtors. FDCPA may apply to foreclosures, but it depends on whether it's judicial or nonjudicial:
When FDCPA applies, your mortgage servicer must send you an FDCPA validation notice that includes:
A foreclosure occurs when your mortgage payments are past due for 120 or more days. If you don't pay your mortgage, the bank (or lender) will begin a legal process called foreclosure. You can lose your home if you aren't able to stop a foreclosure.
If your home is in pre-foreclosure, it simply means your mortgage lender has issued a notice of pending foreclosure and you are at risk of losing your home. When a home is in pre-foreclosure, it is possible for you to work with the lender and other entities to try to hold onto your home.
The best way to protect your home from foreclosure is to pay your mortgage bill on time. If you begin to have trouble paying your bill, speak to your lender right away and ask them if they will help you. Most loan servicers do not want to end up with homes in foreclosure and they will often try to help their borrowers.
Your legal rights in foreclosure vary depending on state law, your mortgage contract, and your situation. To learn more about your rights, consult with a local foreclosure lawyer who can help you navigate the process and ensure that your rights are protected.